Looming public sector cuts may accelerate decline in Wellington's mojo

Friday 9th March 2012

Wellington’s decline in public sector jobs helped contribute to a 16-year high in city’s unemployment rate in the December quarter, stoking concerns the local economy will continue suffer as the lid comes down on the state sector.

Unemployment in the capital rose to 7.3 percent, in the three months ended Dec. 31, up from 6 percent in the prior quarter, according to Statistics New Zealand’s household labour force survey. The dole queue grew in Wellington while nationally the jobless rate fell to a 21-month low of 6.3 percent, ranking it behind Northland and Bay of Plenty.

Wellington accounts for 40 percent of all full-time workers on the state payroll, according to the Public Service Association. Public sector jobs in Wellington fell 3.7 percent to 18,300 last year, the PSA’s figures show.

Nationally, public sector employment dropped 2.2 percent to 43,595 in the year ended June 30 following a decline of 0.3 percent in 2010, according to the State Services Commission. The decreases follow eight years of gains in the taxpayer-funded workforce.

“The reality is Wellington as a city and as a region is heavily reliant on government services and that is declining,” said Nigel Kirkpatrick, chief executive at the city’s regional economic development agency, Grow Wellington. “Wellington can’t rely forever on being a government town.”

“We might see more of a decline in the coming years as the government sector decreases,” Kirkpatrick said.

Wellingtonian workers are already gloomier than the average kiwi despite their compact little city of 365,000, according to the most recent census figures. The city winning plaudits from the Lonely Planet guide as the world’s ‘coolest little capital,’ with big-city smarts like nightlife, arts, café culture and global performers such as Weta Digital and Peter Jackson’s Wingnut Films.

Employment confidence in the Wellington region sank to 98.3 in the fourth quarter, based on the Westpac McDermott Miller Employment Confidence Index, where a reading of 100 separates pessimists from optimists. That’s down from 106.3 a year earlier and ranks the city below Southland, Canterbury, Auckland, Gisborne/Hawkes Bay, Nelson/Marlborough/Westland, Waikato and Otago.

The average house price in Wellington fell 0.5 percent to $385,000 in January from December, while the national median price was steady at $355,000.

In Auckland, the median price fell 2.8 percent to $471,000 though workers in New Zealand’s biggest city are more optimistic than those in Wellington, with a reading of 101.7 on the Westpac McDermott Miller employment index.

“What we are seeing is a drift away from the city towards Auckland,” said Steve Edwards, economist at ANZ New Zealand. “The government is a big player when it comes to Wellington and that will determine what the overall trend will be. On the whole this migration away from Wellington is constraining its potential.”

The lack of diversity and concentration in the government sector means taxpayers provide much of the lifeblood of the windy city. Economic activity fell 0.2 percent in Wellington in the third quarter last year and was down 0.4 percent from a year earlier. Nationally, economic activity rose 0.2 percent for an annual gain of 0.8 percent.

Further bad news may loom for Wellington. The Treasury’s second annual administrative & support services benchmarking report, released this week, shows the government could save $250 million annually by merging administrative and support functions. It singled out the cost of information and communications technology services for dramatic reductions.

The National government has cut more than 2,500 public sector roles since coming to power in 2008, according to Fairfax Media, and is heeding John key’s administration calls to extend efficiencies.

“The chronic lack of innovation in our public sector has led to declining efficiency, poorer services and a loss of value for taxpayers,” said Alastair Boult, director of government advisory services for accounting firm Grant Thornton New Zealand.

“We need public sector management that creates and supports innovation processes and we also need a culture that tolerates failure, encourages creativity and embraces new ideas,” he said in a report titled: ‘Innovation in Government: getting our mojo back’.

“We can get our mojo back but it requires urgency and commitment,” Boult said. “There is a policy and leadership gap in the marketplace which the government needs to fill urgently.”

Grow Wellington’s Kirkpatrick says the city needs to focus on attracting and retaining innovative businesses outside the public sector. Kirkpatrick stressed the importance of investing in infrastructure, manufacturing and information technology - industries that are all contributing above the national average.

“It would be naïve to say it will happen tomorrow but manufacturing is an area which is quite switched on – tech companies are starting to come into their own too,” he said.

BusinessDesk.co.nz

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